Visa Inc. (V) Earnings Call Transcript & Summary

Thanks, everyone, for joining. My name is Tien-Tsin Huang. I cover the payments and IT services sector at JPMorgan, and I was just telling Al, I'm so thankful to have Al Kelly, Chairman, CEO and Visa here, back with us to do a fireside chat. And like other sessions, we'll be doing questions. We'll be taking some questions from the ask a question portal. So if you want to click-through that, I'll be monitoring that throughout the session. But hopefully, we'll hit a lot of the questions you have because I have gathered that from the investor community. So Al, it's great to see you. Thanks for doing this again.

In Tien-Tsin, it's a delight to be with you in your audience. So thank you for having me.

Yes. So let's get right into it. Got the obligatory question around the recovery figure we'd ask you for an update. We know it's -- recovery is underway. Payment volumes are back to double digit. What gives you optimism about the recovery, Al? And where do you think caution is warranted?

Well, Tien-Tsin, first of all, all key drivers, except cross-border are now above or even well above 2019 levels. Where the recovery is going to be different in different markets, but we're seeing very strong growth in our Central Europe, Middle East and Africa region where it was -- at the end of last quarter, it was plus 50% versus '19. Latin America was plus 40% versus '19. The U.S. was plus 24%, which is really quite good considering that credit is only plus 6% versus '19. So while credit started to crack over into the positive growth category, it still is trailing debit by quite a bit. Asia Pacific, excluding China and Europe are the lowest to recover, and both still have issues, they were -- we saw volume plus 8% versus '19. And revenue and EPS now are growing above '19 levels, which is good considering the fact that the travel rebound has really not yet occurred. And domestic travel, is showing some signs of recovery. It's improving in some countries as restrictions are lifted. We're seeing that in the U.S. We're seeing it in Australia, New Zealand, we're seeing it in parts of Latin America. In the U.S., in the second quarter, all categories of spending were above '19, except for travel and entertainment. But in April, entertainment went above '19 levels for the first time. And travel in April was about 75% of '19 levels, but it was 20 points higher than it was in January. So from April to January, well still being below '19, we did see a 20-point movement in travel in the U.S. So I think it's just a matter of time before domestic travel returns. We just released our Visa U.S. Spending Momentum Index, which shows that about -- just shy 2/3 of people are spending more now than they did in '19. So I think consumer confidence is working its way back, which is a good thing. You asked me about where to be a little more cautiously optimistic. And I think there, it's cross-border travel. We're seeing as restrictions get lifted, we're seeing a little bit of increase. In the second quarter, as a matter of fact, our reminding everybody our second quarter is the calendar first quarter. In our second quarter, spend per card was really what drove the spending increase because people were able to spend locally when they were present in a market more than they were prior to that. I do think when borders open, we have evidence that we see some improvement. The U.S.-Mexico border opened up quite a bit in the October time frame. And today, it's running 20 points above '19 levels and several corridors between the U.S. and Latin America, particularly the Caribbean have improved, and we've seen some of them greater than 10-point improvement through the second quarter versus '19. But the reality is many borders are still not open, and there's still a lot of restrictions. Traveling in and out of Asia, for example, is still very, very depressed. It's down about 75% of '19 levels in Asia. I do think that -- just to add, travel in the U.S. is down 70% versus '19 and Europe, which, again, had that additional resurgence in a number of markets down about 60% versus '19. The travel bubbles new term between Singapore and Hong Kong and Australia, New Zealand are the first two examples. We've seen their volume doubled prepandemic -- pre the bubbles that they exist -- that existed. And all indications are that the popular destinations in Southern Europe are going to reopen for the summer. We're seeing bookings be up. We're seeing them saying that people who are [indiscernible] it's opened up in mid-April. And since then, we've seen weekly cross-border, card-present spending in Greece be up 30%, and it's actually accelerated each of the weeks in the last 4 weeks or so. So again, a very, very good sign. I think if the vaccination rate continues to grow in the United States, I think that's going to help travel in and out of the states. The area that's still a real uncertainty is business travel. I think it's going to take quite a while for business travel to return. And my personal view is I'm not sure it gets back to where it ever was. Does it get back to 75%, 80%, 85%, 90%, I'm not sure. The good news for us is that we're not very dependent on business travel. The majority of our volume and travels and consumers. And I do think consumers want to travel. And as vaccinations improved, restrictions are lifted and borders open, I think we'll see consumers back on the road. And I think that's just a matter of time.

Yes. No, I agree with you. My kids are asking me to travel on some cruises already. I'm not quite ready, but we're going to be doing it soon now.

A cruise might be an aggressive for a start, but...

That's what I said. I'll have you call them after we're done. So I don't want to spend too much time on the macro. You did a great job summarizing a lot of the -- what you're seeing on the ground. I did want to hone in on Latin America, if you don't mind, because we are going [indiscernible] there. There's quite a lot of innovation happening in Brazil and surrounding countries. Cases have been rising. Yet, you said it. You guys have been doing very well in Latam. So what's going on there? Why do you think you've gone into another gear on growth in Latin America?

Well, I think it's a lot of it's because the accelerating of e-commerce, both its adoption and usage as well as some client wins in key categories. And to your point, we're seeing -- we've seen 23% year-over-year growth in the second quarter in Latin America and a 40% growth versus second quarter of 2019. And the first thing I'd say is cash digitization is happening. For the first time ever last quarter, cash volume in Latin America actually was less than payment volume. That may not sound like a big deal. And in fact, it was -- that payment volume was only better by about $1 billion. But as a point of reference, in the second quarter of '19, cash volume was 30% greater than payment volume in Latin America. So you could see that's a huge change in a short period of time. So we'll see if it's -- one data point is not a trend, but it's a very, very positive movement, and we'll see how much it accelerates over the coming months. Face-to-face, tap to pay increased. It was up 12 points in March over the same month a year ago. And now 21% or so of the transactions in Latin America are tap to pay. E-commerce, we've seen total spend on active cards double versus '20. The number of active cards, they're active in e-commerce is up 60% year-over-year. The average spend per card is up 40%. So that's a big, big movement and change. Cross-border inbound into Latin America, as I cited an answer to your first questions, recovering the U.S. to Latin America is now overall, about 80% of '19 levels in March. So much better than we're seeing in other regions around the world. We -- I alluded to client wins in Brazil, we won conversions of Banco Santader and Caixa, [indiscernible] of Federal. And in Brazil, we won Banco Estado, which is a very large debit portfolio. We've been talking on some of the recent calls about processing improvements in Latin America, and we're seeing that we've made a lot of progress in Ecuador in Colombia or Brazil. We reached 100% processing now in Chile as of the end of the first quarter. And we're driving value-added services growth, particularly in risk identity solutions as well as our Visa consulting and analytics services, all of which is really very helpful in driving some of the performance in Latin America. In new flows, we're seeing more banks in on a B2B Connect. And YellowPepper is really helping us in terms of growing access to Visa Direct in the region. The Peruvian P2P player plan, we've seen transaction growth, especially since we originally signed with them in -- I think it was October of '19. We now surpassed 4 and a -- 5.5 million transactions in the first quarter of '21. Yape in Peru is a Visa Direct-powered wallet used for P2P payments and as well as merchant payments. And since our launch with them in late 18, we've reached 5 million users in January and tripled the daily Visa Direct transactions in the last 6 months. And as you, I think, know, WhatsApp in Brazil is using us as well for P2P. Additionally, in Latin America, we're seeing wallet proliferation as we are in many other parts of the world. I guess, my best example there is Rappi, the super app, which has 65 million users, they're already utilizing Visa for 1 million credit and debit cards, but they're also now using us in RappiBank that they're starting, and they're also one of our biggest clients in terms of CyberSource and decision manager. So there's a whole bunch of good stuff going on in Latin America, but I think the pandemic has been -- done a good job in driving people to digitization, and that's a big factor here.

Yes. Well -- and you led with it, right? Cash has really been displaced here with the pandemic. When we updated our market share report, that was the biggest learning and all the data across is just cash really finally, took a real hit in. So let me ask you this then, with new revenue, new profit, you said it, Al. You're back to 2019 levels. That's despite cross-border being, what, 60-plus percent down, what, almost $2 billion, $3 billion down in terms of revenue. So I'm sure the cash getting taken out has helped. But do you expect that cross-border revenue to come back given e-comm and some other areas around cross-border? I know you mentioned business travel may not come back. But I'm curious if you think that you'll get that back to where you were in '19 with some of these cross-border fees in other areas.

I do think it's going to come back, Tien-Tsin. The question is when. I'm not smart enough to tell you the when part of that. As you know, international transaction revenue is really driven by cross-border. And prepandemic, it was 2/3 travel, 1/3 card-not-present purchases, the pandemic completely reversed that. But I don't think that it reverses back even with cross-border travel coming back. I think the card-not-present e-commerce is going to sustain as people have just -- many more people have adapted to it. And people who had previously adapted to it are now really hooked and spending more. We've seen our transaction growth in global card-not-present cross border, excluding intra-Europe, that's a mouthful. The last 3 quarters have been up 20% year-over-year. It's up almost 30%. And in a few -- in the second quarter, and it's up 44% versus 19% in the second quarter. And a lot of that's driven by real strength in retail, but also driven by growth in purchases of cryptocurrencies, which is kind of a new trend that we're seeing out there that's also being helpful. Again, on the travel side, I addressed some of the issues already, especially around consumers. But I would remind you and our investors and other people looking at Visa that our cross-border travel business is very diversified. No one card dominates at all. And in fact, the largest corridor for cross-border travel represents a low single-digit share of overall cross-border travel. And I think once the cross-border starts to come back, you're going to see us use that as an opportunity to invest more in the business. And we're doing a lot of thinking about how we invest in our 3 growth levers. How we develop new simpler user experiences like tap to pay and click-to-pay and tap on phone. We're going to continue to invest in our capabilities, growing use cases for Visa Direct as an example, advancing our fraud and identity capabilities, focusing on specific geographies, Europe and Africa come to mind and certainly innovating in -- for the whole payments ecosystem, things -- investing in things like AI, tokenization as well as APIs for access to crypto. So does it come back? Yes, when does it come back? Not sure. But I do think that there are some green shoots out there, and I'm hoping that Europe certainly wants to take advantage of the summer months to get as many people traveling as they can. And certainly, it'd be great to see people returning to the U.S. and I think the fact that the U.S. vaccination rate, while I'd like to see it higher, is at a pretty good level, is going to give more consumers' comfort to come back to the U.S. and visit this summer.

Yes. I think when I first had you at this session a few years back, we talked about diversifying away from cross-border travel, from a revenue perspective, and it sounds like it's happening as a result of the pandemic, which is great. But that leads me to another question for you, Al. Just thinking about e-com and everything that's happening with the digitization of the world, we're really trying to study this idea of modern versus legacy technology, modern versus traditional platforms. And I know you have a lot of e-comm assets, including CyberSource. How do you think about Visa and how modern your technology is versus some of the other digital-first players that are out there?

Well, look, we would never have been able to be as successful as we were weathering this pandemic. Obviously, our volumes were down from what we historically look at, but I think we've been able to weather the pandemic because we have some really good tools in the e-commerce space and for card-not-present. And look, in the last 3 quarters, we've seen greater than 30% growth in card-not-present in the U.S., Canada, Brazil, Italy, Germany, in Singapore. And we have some great assets. CyberSource is certainly one of them. It's attractive to many players. We've seen SMCC, Barclaycard, NAB in Australia all adapted on a kind of a white label basis. In the case of SMCC in Japan, they now have a processing 0.5 billion transactions, e-commerce and face-to-face a day and they're finding decision manager to be a really compelling tool. That tool leverages a whole bunch of detectors, 260 or so in total to produce a very differentiated fraud score that SMCC and other people who are using decision manager are found to be very, very useful. And CyberSource is something we invest in heavily. We actually have a dedicated technology team that only works on CyberSource. So it's something that we have been investing in, and we'll continue to invest in. We have these advanced authorization, which is one of our staple risk products. It provides a real-time score on every transaction that helps merchants and issuers separate good transactions from fraud transactions. And when you combine the AA with our tool called Visa Risk Manager, which is a web-based tool that allows an issuer to change rules to fit their risk criteria, we get a very powerful weapon. And in fiscal '20 particularly a sense of the size of these tools, we scored 160 billion transactions across 8,000-plus issuers and 125 different markets. So really, really huge. And you've seen the growth we've seen in tokenization. It took us 6 years to get to 1 billion tokens. And in the last 10 months, we've gotten to 2 billion tokens. So the adoption of tokens is taken off. Net-net, I think that we've got a lot of good tools in the space of e-com. We're going to continue to invest in it. And I'm confident about it as a continued growth lever. And yes, it will change the profile and the mix a little bit of our cross-border between card-not-present and travel. But I think all boats will rise in the category itself will be large or coming out of -- once we get through the recovery, and at least most of the big markets, Tien-Tsin.

yes. No, that makes sense. I mean, we sometimes forget how big Visa is. I know you shared that you were a 40% share in digital on the card side. So that's why I wanted to ask the question, and which leads me to the next one. And you mentioned crypto. Al, I know a lot of companies are watching, right? What Visa is going to be doing on the crypto side. And I would think Visa has a lot of influence on crypto for commerce, given that you are so important on the commerce side. So I'll ask you -- I know you've had a lot of great comments on this in the past, but I wanted to just make sure I understand, like how is the -- what is Visa's criteria, okay? To validate crypto on the network from an acceptance standpoint. And then secondly, I was hoping you could quickly touch upon CBDC and blockchain, just implications on the overall payment system. It's such an important topic right now. And again, you are a very important actor in this as well. So what's the -- what's your response to that, Al?

Well, certainly, crypto is the shiny object out there. I was -- I played golf on Saturday and probably spent 4 or 5 holes exhausting everything I knew about it with my 3 playing partners who knew nothing about it. So it's a very interesting topic. Look, I -- as you've heard me say before, it's not mine to judge what's going to work well, what's not going to work, what's going to get adoption, what's not going to get adoption, I don't pick winners and losers. I'm fairly confident that crypto is going to play a big role in payments to be determined exactly how big and in what kind of sequence and staging over time. But we are big time leaning into the crypto space because of the fact that we think it really could make a big difference. And what our strategy is, is to get as involved as we can to learn as much as we can, talking to various blockchain players as well as talking to and getting involved with as many crypto wallets as we can around the world. We had reported that earnings that we had deals with 35 different crypto wallets. We now have 50 -- over 50 different crypto wallets that we have deals with. With every one of those deals, some are bigger than others, some are quite small, we're learning. We're learning from the management teams. We're learning about what they are thinking about relative to crypto. And what we know we bring right away is we bring relevance we bring a great brand. We bring a lot of experience in payments. And for a lot of these crypto players who have a marketplace that is still somewhat nascent in terms of being able to provide utility, they're putting Visa cards in their wallets to give their customers the ability to immediately have the utility of Visa's 70 million merchants around the world to go spend if they want to spend. And that's extremely valuable for these crypto players. And along the way, we're getting a sense of, do those people spend on the same kinds of things that other people spend on. And when they convert their cryptocurrency, when are they converting into what are they're buying, et cetera. So there's a lot of learnings on our part. As you know, we're also providing a set of APIs that we've built, making them available to issuers to allow them through their website or their mobile device to enable their customers to buy or trade or custody cryptocurrencies. We're doing that primarily with Anchorage Bank, the first federally charted digital asset bank in the U.S., and we're learning from that. So in general, our strategy right now is to learn as much as we can. As part of that learning process, we're doing 2 other things that I'll highlight, and then we'll move on. One is we are building along with our -- really, our tech and treasury folks are building the capability to be able to settle in stable coins, so that at least for the actual crypto company doesn't have to convert to fiat. Again, we're working with Anchorage on that. We have just started to experiment with a pilot there. And I think we're going to -- we already settle in 26 different currencies every evening, and this really should just be another type of currency to settle in. So we think that there's a lot of promise for that downstream. And then when you talk about Central Bank digital currencies, everybody is in early innings, perhaps except China, which is a bit further along on this than anybody else. And it's always difficult to get specifics of exactly where they are in China. But our strategy is to work very closely with the central banks, have a lot of discussions. We have a lot of robust dialogue going on in many central bankers around the globe. We're emphasizing to them the importance of security, usability, accessibility, trust and the fact that the best way to get home is probably with public-private partnerships, and that we, at Visa, want to be part of the ecosystem for digital currencies. And I think we're getting a fair good amount of receptivity from central bankers as we talk to them. But in general, I would say, crypto for buying as well as Central Bank digital currencies is we're very, very much in the early days, but I i feel very good about how our team has gotten out in front of this and positioned us well is really, I think, the go-to partner right now in terms of both expertise and, I'll say, experience in quotes because it's so new, but it -- but experience in this space.

Yes. No, I follow you. I mean, like I said, Visa carries a lot of weight here. So I think it's important to watch what you guys do next. So, no, thanks for that. I don't want to spend too much time on crypto. I do want to hit a few things. I know Central Bank you mentioned with CPDCs. But staying with the Central Bank theme, I think every year, I ask you about nationalism now. So Brazil PIX, India, UPI, right? There's some interesting initiatives going on, getting it more involved in alternative payments. Where is the pendulum swinging out in terms of nationalism and are there [ TAM implications ] for Visa as you watch some of these things like PIX and UPI gain some momentum?

Yes. Look, you've had this consistent theme. I think it's a good one to talk about. We talk about it all the time. That said, it isn't anything new. And at some level, government is getting more involved. I would say, I don't know if it's nationalism or not, Tien-Tsin, but I would say that as a result of the pandemic, there's a lot more interest in payments amongst more countries than they were before. And that cuts both ways. I think in general, it's a good thing. It's -- as long as governments don't form opinions based on not talking to people. If they're fact based, it's generally fine. And more and more governments, by the way, are looking to become clients as they want to set an example and get digital and stop distributing their own subsidy funds through vouchers and things like that. If you look at India, I think India is in many ways, a great example. Back almost 5 years ago now in November of '16 when demonetization happened, we were the market leader and had a very strong position in both debit and credit in India. And demonetization really did reset our base. And -- but as a result of that, in the first year, since demonetization, our business in India doubled. And since then, as we've seen growth in credentials and growth in acceptance points, our business remains quite strong despite the fact that there is a nationalistic scheme there. But the reality is that for the most part, for the most part, it's been an even playing field. If you look at PIX in Brazil, I look at it as more of an opportunity than a risk because it seeks to digitize cash at its core. And at the end of the day, that's critical for us as we think about our networks and network strategy, which, just to quickly remind people, is for us, it's moving dollars to all endpoints around the world doing it, using all available networks and being a single plane of connection for our partners. So they don't have to worry about how the funds flow. We do that for them. We want to make sure we facilitate liquidity and guarantee payments on the other end Visa -- via our settlement services. And we want to provide value-added services on transactions regardless of what network they're on. So a lot going on. We're working with -- in Brazil, we're working with acquirers, issuers and fintechs using AI and machine language such as to improve things like decision manager or an account takeover protection, which are 2 very strong cyber solutions. And back to PIX, we see PIX as a place where we can help them in terms of providing some value-added services. So when I look out there and I look at the opportunity, I see more opportunity. Regulation has always been -- once government is going to involve regulation is always a possibility, but that's something as well that we've been contending with over time. So the answer to your core question is I'm not sure that nationalization really has gotten -- we've seen any material movement. But absolutely because of the pandemic, we've seen more interest on the parts of more governments in payments and money movement.

No, that's helpful to hear. The money movement concept, staying with that. I know Visa Direct has been quite successful, right, growing 60-plus percent and push payments, very clever, right? Product, hard to be visa on scale. Can you just -- I get this question a lot out, the value proposition of Visa Direct versus some of these other, let's call them, RTP networks or some of the other competitors that are out there, if you want to call it that. What's the pitch? Why -- because Visa Direct is live now, right? People ask me about [indiscernible], TCA since some of these things are still developing, but Visa Direct is live now. What's the value prop?

Well, I'd start with the fact that there are -- to go to where you started, which is there's about, I think, around 45 different RTP systems in the world, and few of them have really gained any meaningful traction. And I think it's due to limitations of things ranging from speed to a lack of or less robust solutions around dispute resolution, risk management, fraud and loyalty. And we believe Visa Direct has -- is a superior option than anything else that exists out there. And let me tell you the reasons why I think that's the case. One is reach, that we have the ability to reach an incredible amount of endpoints between our credential -- between card credentials and bank accounts, leveraging Earthport and our own capability. And we believe now we can reach 5 billion endpoints. So we don't think anybody else can do that. Secondly, we have incredible operating scale because we operate Visa Direct on the core platform of VisaNet. So we didn't create new technology here. We're leveraging existing technology. And therefore, we can deliver the industry a really good solution at a very low marginal cost. Thirdly, it does -- we really are truly taking advantage of the network of networks. And on Visa Direct in the last year, we not only used VisaNet and Earthport, but we also used 15 or 16 other card-based networks. We use 65 different ACH schemes. We use 7 different RTP systems. We use 5 different payment gateways. So we really are taking advantage of the different types of rails that are out there that we have as much access to as anybody else to route the transaction in the best possible way. Fourthly, we're investing heavily in Visa Direct. So we're investing in a leading technology stack for both payouts as well as account funding. We're increasingly looking for new use cases for Visa Direct. We're looking to deepen the penetration of use cases that we already have, and we're looking to roll these direct use cases out to new geographies. And the last thing I would say is that we, I think, have a proven track record now of commercializing this. And probably the best example is what I just talked about was use cases. And we have about 450 different Visa Direct programs launched around the world between the use case and the country today. So that's really powerful. I think we work with 25 different earned use -- earned wage access platforms. We work with most recently than has to deal with Airbnb for host payouts. We work with most of the big cross-border remittance players, MoneyGram, Western Union, Remitly, TransferWise. So a lot of -- while it's been a short period of time, I think we've built quite a track record as well. So we feel very, very good about it. And I think it's the best tool out there for moving money from one country to another.

Yes. You have so many endpoints, right? You mentioned Earthport, giving you a 5 billion some odd endpoints on that alone. We've been saying, Al, I think you've heard me talk to you about this before, right, that everyone is trying to bank their users, right, give their users a debit card and provide transactional services against that. So I've been trying to think with this in the stock market world, moving to ARPU and everything else is credential growth potentially a more important metric than volume growth? Not right now, but maybe longer term, could we think about that as an important KPI? I know we're almost out of time here, but I wanted to get your views on that, if that makes sense.

Well, I think credential growth, as a means to an end, is a very important metric going forward. But I actually think at the end of the day, more credentials, more acceptance points, deeper engagement with our customers is going to equal more transactions, which is going to equal more payment volume, which is going to provide us more opportunities to process, and therefore, more opportunities to sell value-added services. So that's the way I think about the value chain. We get as many credentials as we can, as many acceptance points as we can drive as much engagement with our issuers among -- for every single credential we have, and that's going to give you the transaction. The transactions then give you the volume, the volume gives you the ability to process more. The processing more, gives you the ability to drive more value-added services. So I do think credentials are important, but I think so are those other dimensions as we look ahead. And as I said, we're going to continue to drive use cases. We're going to try get drive core payments. We're going to continue to drive credentials through at least transactions through Visa Direct as we build out B2B Connect, that's going to help us drive transactions once it scales. So that's kind of where we're trying to head.

Yes. No, there's a lot going on. Now I think we covered a lot of ground in the short period. This is fine. As always, we should have more time. I don't know if it's possible in 30 seconds, if you can just -- what are you most excited about that I haven't asked you about it already? If you were to emphasize something here that we should maybe think about that [indiscernible] in the year. I want to have you back, hopefully.

I think in this little speed question around, I guess, I would probably say something that might surprise listeners, which is I remain very excited about the United States. While we're diversifying outside the U.S., and everybody is focused on us diversifying outside the U.S. and well, people might think of the U.S. as a more mature market, which it would have to plead guilty to, there's still a $4 trillion of spend on cash and [indiscernible] in the U.S. top to pay is in its very early stages in the U.S., unlike other markets. I think there's still a lot of opportunity to the in different places to unearth more acceptance in places like parking, vending, rent, et cetera. And I think there's a lot of room to grow in new flows and value-added services in the U.S. So what we tend to talk a lot importantly about the ability of our company to grow outside of our home headquartered market, the reality is that home headquartered market still has a lot of juice left in the tank, in my opinion, as well.

That's encouraging to -- that's definitely encouraging here. I think we're out of time. How this was great. Again, very thankful to have you, and hopefully, we'll be able to catch up soon in person.

Tien-Tsin, good to see you. And glad you're back in the office. I'll make sure Jamie knows you were there today. So thanks.

You got evidence, I'm right here. Great to see you, Al. Thank you.

Bye-bye.